bill consoladation,pro's and cons?

Question

I'm a single mom with good credit standing. the problem is I have too many cards and my spending has gotten out of hand. I'm not in collections but my whole paycheck goes to these bills. I'm tired of scraping every month.
should I consoladate? please give good and bad experences

Answer 1

Consolidation is a good idea.....as long as you take this warning.

Over the past few years, many people have gone to consolidation and home equity loans to try and cure their credit problems. They take all their bills and combine them into one bill, which generally is going to be mean a lower monthly payment, but will take longer to pay off. OK, so far so good.

The problem is that these people turn around and charge thing on their "now empty" credit cards. The result is they are now twice the amount in debt. They end up filing for bankruptcy.

Over the past two years the vast majority of people who filed BK did it for that reason.

So as long as you understand this trap, you will do ok. Consolidate your loan, but STOP further credit spending. Get rid of the credit cards and try to use all of your disposable income to get this new loan paid off.

Otherwise, start looking for a bankruptcy lawyer.

Answer 2

Bill consolodation companies hurt your credit as much, if not more, than bancruptsy. You are capable of cutting up all but one card on your own. You also can do the same things these companies do on your own. Call them and make arrangements to lower your monthly minimum, telling them that you are not going to use the card anymore until it is paid off. I don't know if they will work with you as well if they know you cut it up, so you may want to withhold that little piece of information. Think about having a yard sale and making some money off all the junk you bought on impulse; you may make $300 or so that you can put toward one of the cards. The overspending is filling a need that money and debt can't fill. Instead of going to a credit counselor who will damage your credit, think about going to a different kind of counselor who can help you sort through why you are filling a hole with spending. It is not uncommon at all, as a matter of fact, it is very common. As a single parent, we oftentimes try to make up for it by over indulging our children. We want them to have the same things we think the others have. It is a bad financial trap. Spend time with them and you won't feel as bad if you can't get them everything their friends have.

Mortgage companies and other lenders look at a person who uses debt consolodation as a bad risk. If it is totally out of control, there are accountants and even professional organizers who can help without hurting your future credit. Good luck.

Answer 3

PRO; you have only 1 bill to pay and most times it is lower than the cards you are using.(2) You are paying less interest that if you paid all cards every month, however, you must not use the cards again unless it is a dire emergency. CON (1) if you have not learned your lesson about using credit cards, you will end up with the consoladation loan plus more charges on your credit card (2) Sometimes you have to put up collateral (usually your house or car)IN MY OPINION, a much better way is to pay mininum on all your cards, but 1, on this 1 pay all that you have left from paying mininum on other cards, pay this 1 off, then chose another bill pay the mininum plus the amount you were paying on the 1st card until it is paid off, then chose a 3rd card, pay niminum plus what you were paying on cards 1 &2 then etc, etc. It usually takes you about 18 months to 2 years to do this, but eventually you are out of debt. DO NOT USE YOUR CREDIT CARDS IN THE MEANTIME UNLESS IT IS A DIRE EMERGENCY.

Answer 4

Studly is absolutely right, but......

if it's a home equity loan or home equity line of credit, you're Payments will be cut in half, at least...you continue paying what you are currently paying to the credit card companies and the debt is gone in about 5 years...that's truly your best way to go, if you are disciplined...only time you shouldn't use home equity is if you plan on moving before some of the debt can be paid off, if you expect your home's value to drop significantly, or if you can not make the new lower monthly payment...

here's another element if you decide to consolidate:

if you do an unsecured personal loan - you will consolidate everything, giving you one payment, but as you pay down the loan, your payments will NOT go down. the interest rates are just as high as credit cards, but give you no flexibility and cost you to do it...

Answer 5

Consolidation will definitely help reduce monthly costs now and that may be your biggest issue. However, the debt doesn't go away unless it is paid. If you own a home you should use the equity to payoff the balances but DO NOT continue to add to them. At some point spending must match with income. The consolidation will not change habits.

Here is some additional info. Hope this helps.

Answer 6

you should only consolidate if you are willing to cut up all your credit cards and NEVER use them again. Otherwise, you'll just end up in the same or worse mess again. If have the slightest doubt that you will be strong enough to do this, then don't consolidate.

It also depends on the interest rates of your current debt versus the rate on your consolidation loan, and on whether you plan to use your home as collateral or not. I wouldn't...

Answer 7

Consolodation can be a good thing if you use it properly.

If you're afraid that you might miss a due date on one of the cards by accident and that would cause all your rates to go up.....

One payment is easier to remember and less costly in check and stamp fees.

If you can consolodate at a better rate than most of your other cards and will save you money.

If, after you consolodate, you don't keep spending on your cards and adding to your debt.

It also helps if you can pay off more than the minimum amount each month too.

Good luck.

Answer 8

Debt Settlement Vs. Debt Consolidation

Debt settlement and debt consolidation both offer ways of reducing your debt. Debt settlement eliminates part of your loans, while debt consolidation reduces interest rates. Even though debt consolidation has the least impact on your credit score, there are cases when debt settlement is a better option.

Lower Debt

The goal of both debt settlement and debt consolidation is to lower your debt. Debt settlement companies negotiate with your creditors to sometimes reduce the amount of your unsecured debt. There will be a fee associated with the program that equates to roughly 1% of the interest that you will pay if you continue to pay the creditors directly.

Debt settlement can reduce your debt 40% to 60%. A debt settlement program can also cut our payments by 40% in most cases making it easier to cope with your monthly budget. In most cases for a consumer in a debt settlement program they are typically debt free within 2-3 years that can be about half the time it would take in a Consumer Credit Counseling Program or a conventional debt consolidation loan.

Debt consolidation pays off your high interest debts with a low interest loan. Home equity loans provide the lowest rates, but after stretching out the loan over 20 years the 6% interest refinance winds up costing the same amount as a 21% interest credit card. A conventional bank loan will not pay off the debts but rather transfer the debt from one institution to another. This action appears to banks and mortgage companies as a last ditch effort on a consumers part to try and rectify a sinking situation. Many mortgage companies see debt consolidation loans as a sign of stress in your financial situation making it difficult for them to extend you credit in the future.

Credit Score Implication

Reducing your debts through debt settlement is a method to get out of debt in a short period of time relative to your credit history. You credit score will drop, making you ineligible for prime lending situations. You can apply for sub-prime credit after a year however the goal of a debt settlement program is to get out of debt not to create new ones.

Taking out a loan to consolidate your debt will have a major impact on your credit. Since your debt isn’t actually decreasing, you will be negatively hit on your credit for opening another account making your overall situation more overextended. Most debt consolidation loans are issued with the assumption that the problem debt will be paid off and then the accounts closed. However 98% of consumers that get a debt consolidation loan do not close the problem accounts but rather make things worse by incurring new debt on the paid off accounts. Now the consumer is faced with the debt consolidation loan in addition to the new debt on the other accounts that were previously paid off.

Financial Choices

No one financial choice will fit everyone’s needs. While debt settlement will have an affect on your credit report, additional loans may be too expensive. In extreme cases, debt settlement can help to avoid bankruptcy and costly debt consolidation loans. Many debts settlement companies report that about 50% of the debt that their clients put into the program is debt from a prior debt consolidation loan.

Answer 9

Cons is a good idea.

Good LucK!